Salisbury, NC Installing $30 Million Fiber-Optic Cable System

Salisbury, North Carolina officials are “irresponsibly risking” taxpayer money on a $30 million fiber-optic cable system, according to a study by the John Locke Foundation, a free-market think tank in Raleigh. The organization says the fiber-optic network could force taxpayers to “foot the bill for big business.”

Salisbury’s $30 million fiber-optic network for Internet, phone, and television service was approved by city leaders last year and is scheduled to be complete by mid-2010. It will be available initially through 217 miles of fiber-optic cable connecting 14,000 homes and businesses.

The city is funding the project through the sale of 20-year bonds that taxpayers are responsible for paying back.

Most Residents Won’t Benefit

“Most residential users do not benefit from the system: Prices are not appreciably lower, the phone and TV quality are not significantly higher,” said Michael Sanera, research director and local government analyst for the John Locke Foundation and coauthor of the study. “The high Internet speeds—100 mbps—are not needed and are too expensive—$300 a month—for the average homeowner.

“Television and phone quality will not be appreciably better than private-sector competitors, and the highest speeds available through fiber technology will come with a price tag too high for most residential subscribers,” Sanera added.

“City officials admitted from the start that the fiber-optic cable system was an economic development strategy to be used to attract new business,” Sanera said. “Thus, large business users benefit with deep discounts for the high-speed service at the expense of average residential consumers who pay market prices for a package of Internet, phone, and television [after paying taxes to build the system].”

The taxpayers could be on the hook for even higher costs, Sanera says.

“If the system cannot attract enough subscribers, city officials have stated that they will use an increase in property taxes of 9.5 cents per $100 valuation to fund the project,” Sanera said.Perils of Public Networks

Jerry Ellig, a senior research fellow at the Mercatus Center at George Mason University in Arlington, Virginia, says Salisbury’s public fiber-optic network isn’t “doomed to failure,” but history suggests the odds are stacked against it.“The issue is not so simple as ‘all public broadband projects are doomed to failure,’” Ellig said. However, “The one thing experience does teach is that broadband involves much more rapid change than other public utilities local governments are accustomed to running, such as water or electric.

“Capital will become obsolete faster,” Ellig added. “So any city that wants to get into the broadband business needs to understand that it will need to continually update the infrastructure and innovate.”Unique Challenges

In addition to the usual arguments over the pros and cons of government service provision, Ellig said, “Less extensively discussed are some unique challenges that arise because broadband is a new, fast-changing technology available from competing suppliers. Policymakers need to consider some unique problems when a government enterprise enters a dynamic market such as the provision of Internet services.

“It is difficult to see why a city would find this worthwhile unless it is in a relatively sparsely populated area where it is unlikely to receive broadband service from a private company,” Ellig added.

Failure Predicted

Steven Titch, a policy analyst at the Reason Foundation in Los Angeles, said Salisbury’s publicly funded network is bound to fail.

“These projects invariably go wrong because they can’t compete with the private sector,” Titch said. “When they embark on these projects, municipalities promise three things: ubiquity, lower prices, and positive cash flow. No government broadband operation has successfully delivered all three.

“Costs are routinely underestimated and market share overestimated,” Titch added. “Pity the residents in Salisbury, for they’ll end up paying twice for broadband service—once for the service they buy from one of many commercial providers, the second time with tax dollars to keep their failing municipal system afloat.”